Fibonacci Retracement
a.k.a. Fib retracement, Fibs
Horizontal levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a price swing, where traders watch for a pullback to stop.
After a big move, prices often pull back before carrying on. Fibonacci retracement levels mark how much of the move has been given back. The ratios come from the Fibonacci number sequence (50% is not a Fibonacci ratio, but traders include it anyway).
Traders draw from the swing low to the swing high in an uptrend and watch for buyers to step in near 38.2% or 61.8%. They work partly because so many people watch them, and they work best combined with other support or confluence.
Drawing retracement levels
- EUR/USD rallies from 1.0600 to 1.0800: a 200-pip swing.
- 38.2% pullback: 1.0800 − (0.382 × 200 pips) ≈ 1.0724.
- 61.8% pullback: 1.0800 − (0.618 × 200 pips) ≈ 1.0676.
Bottom line: Traders watch 1.0724 and 1.0676 as possible areas for the dip to end.
Redrawing the swing points until a level lines up with where price already turned.
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